Bitcoin experienced a significant drop of -5.65 standard deviations (σ) today, marking only the fourth occurrence of such an extreme event in its trading history since July 2010. This level of volatility, calculated with a 200-day lookback period, is considered nearly impossible under normal distribution, with a theoretical probability of one in a hundred million. Despite the fat-tail effects in financial markets, this event challenges quantitative strategies, as similar volatility levels have not been seen since before 2015, except for the 2020 '312' flash crash. CoinKarma's quantitative strategy faced paper losses due to this market movement, but the impact was mitigated by maintaining low leverage of about 1.4 times, resulting in a maximum drawdown of approximately 30%. The extreme conditions serve as a learning opportunity, with contract and on-chain data expected to enhance future risk control models.
Bitcoin Experiences Rare -5.65σ Drop, Only Fourth in History
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